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Tags: u.s. economy | office mortgages | federal reserve | defaulting | loans | recession

Economy at Risk As $117B in Office Mortgages Coming Due

By    |   Monday, 01 January 2024 10:48 PM EST

The U.S. economy could be at risk this year as about $117 billion in loans to office buildings across the country are coming due and must be repaid or refinanced.

A large portion of that is at risk of defaulting, which could prove costly to banks and developers, with some becoming insolvent, the Daily Mail reported Monday, citing the Mortgage Bankers Association. It also could increase the likelihood of sparking a recession.

Owners of office spaces across the country got their loans when interest rates were half what they are now and the owners might not be able to refinance them at the higher rates.

Economists last month found 40% of office loans were underwater, or owing more than the property is worth, the Daily Mail reported. Smaller regional banks who loaned the money to buy them could be at risk if the loans default as they are not big enough to handle the losses.

Moody's Analytics estimated 224 of the 605 loans that will expire soon will be tough to repay or refinance because their owners have too much debt or the buildings aren't making them enough money, the Daily Mail reported.

The analysts predict buildings would need to generate at least 9% of their debt in annual income or their owners face difficulties refinancing.

The Seagram building on Park Avenue in New York was mortgaged at $760 million in 2012, with the lender assuming the building would bring in $74 million in revenue a year. But the best it did was $69 million in 2018 – and only $27 million in 2022, according to the Financial Times.

Market analysts are hoping interest rate cuts by the Federal Reserve might come earlier than predicted, the Daily Mail reported. The Fed raised interest rates to help stem inflation, but now that inflation has eased to 3.1%, the analysts hope the damage from a total of $1.5 trillion in real estate mortgages coming due during the next two years will be limited.

Michael Katz

Michael Katz is a Newsmax reporter with more than 30 years of experience reporting and editing on news, culture, and politics.

© 2024 Newsmax. All rights reserved.

Approximately $117 billion in loans to office buildings are coming due this year and must be repaid or refinanced, putting the U.S. economy at possible risk, according to the Mortgage Bankers Association.
u.s. economy, office mortgages, federal reserve, defaulting, loans, recession
Monday, 01 January 2024 10:48 PM
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